Digital currency is an internet-based medium of exchange. Digital currency may be based on exchange rates for physical currency (e.g., the United States Dollar). Various types of digital currency exist, and may be used to buy physical goods and services from retailers that have agreed to accept the type of digital currency offered.
Bitcoin is the most popular type of (e.g., unit of) digital currency used in the digital currency eco-system. The Bitcoin transactional system is peer-to-peer, meaning transactions take place between users directly, without an intermediary (e.g., without involving a bank). Peer-to-peer Bitcoin transactions may be verified by network nodes and recorded in a public distributed ledger called a blockchain, which uses Bitcoin as its unit of accounting.
As opposed to physical currency systems backed on natural resources (e.g., gold), Bitcoins may be created by using software and hardware systems to solve a series of mathematical algorithms (e.g., Secure Hash Algorithm 256 (SHA-256)). When the Bitcoin mining algorithms are solved in a way that satisfies certain predefined conditions, a new block is added to the blockchain and a certain number of Bitcoins are awarded to the miner; thereby introducing new Bitcoins into the eco-system. Bitcoin mining algorithms are inherently difficult to solve, and thus require large amounts of processing power. Because of the large amount of power utilized, and the relatively high cost of that power, mining Bitcoins can be a very costly endeavor. In some embodiments, the cost to mine a single Bitcoin may exceed the value of the mined Bitcoin.